Locational hedges project
Introduction
Locational price risk refers to unpredictable movements in the price for electricity at different node varies (locational prices) throughout the country. Locational prices are largely driven by transmission constraints that reflect many complex and uncertain aspects of the electricity system. Locational prices are also affected by transmission losses, which are more predictable.
Participants in the wholesale electricity market are currently limited in how they can manage locational price risk. In general, a purchaser's exposure to locational price risks depends on their volume of hedge contracts and level of self-generation (if any), and on where those contracts and generation units are located relative to the location of their load. Hedge contracts may not provide effective protection against this type of locational price risk.
The main source of locational price risk occurs between the two islands - inter-island locational price risk - which accounts for approximately two thirds of all locational price risk. The other third arises within each island-intra-island locational price risk.
Solutions are sought for both inter and intra island locational price risk which will provide participants with a mechanisms to manage their locational price risks.
Inter-island locational price risk
The Authority has notified a Code amendment in the Gazette, which allows for the introduction of financial transmission rights (FTRs).
The Code amendment comes into force on 1 October 2011, and the Authority intends for the FTR market to be operating from 1 October 2012.
Work on a solution to inter-island locational price risk has been ongoing since 2008; the introduction of financial transmission rights should help participants to manage this risk and increase retail competition.
Overview of key dates for inter-island locational price risk:
| Milestone | Date |
|---|---|
| Consultation - Regulations to implement the FTR market | 21 October - 17 November 2011 |
| Request for proposals released for FTR manager | 30 August 2011 |
| Code amendment - introduction of financial transmission rights |
August 2011 |
|
Consultation Managing locational price risk: Proposed amendments to the Code |
April 2011 |
|
Consultation |
September - October 2010 |
| High level option selection | May 2010 |
| Information paper: Towards selection of a preferred high level option | March 2010 |
|
Consultation |
October 2009 |
| Supplementary analysis | February - August 2009 |
|
Consultation Issues paper: Managing locational price risk |
July 2008 |
Further details on the development of financial transmission rights are available on the Development of an inter-island financial transmission right page.
Details on the implementation of financial transmission rights are available on the Implementation of an inter-island financial transmission right page.
Intra-island locational price risk
The Authority is also progressing a solution to intra-island locational price risk, and is currently identifying a list of high level options to be considered. High level options are being identified and will be discussed with the LPRTG before the end of 2011, with a view to forming an options paper for consultation in 2012. Further information will be added as the project develops.
Locational Price Risk Technical Group (LPRTG)
The LPRTG was established to provide specialist and technical advice in relation to the detailed design and operation of selected mechanisms for managing locational price risk.
This page is related to: Priority Projects.